Let’s take a break from our weekly news roundup and try testing our knowledge of common stock market terms. This test was a hit some time ago in our website. Thought it might be interesting to see how many can ace it :-). Besides, it’s fun to know that a word you can pick out from the dictionary has a totally different meaning in the world of brokers, bulls and bears.
1.) When someone asks you to “hit” shares do you: A) throw your stock certificate? B) cancel an order to buy or sell? or C) buy or sell a stock at a particular price posted on the trading board?
2.) Under your “street name” is A) your complete address for your brokers’ record? B) the shares you own registered in the name of your broker or C) the code name of one broker trading through another broker
3.) When a broker offers you a “warrant” it is equivalent to: A) handing in your account number B) a long-term form of investment product usually attached to a bond or preferred stock C) it gives the holder the right to buy a fixed number of a company’s common shares at a price that is set higher than the stock’s current price at the time of its offering, D) I’m sure it’s B and C, E) Can it be A and C?
4.) EBITDA is earnings before interest, tax, depreciation and amortization. It is useful to know because:
A) it is a measure of a company’s profitability, B) it tells the investor how much cash a business raises before interest is paid, C) it is hard to manipulate, D) definitely it’s A and C, E) of course it’s B and C, F) absolutely it’s A and B
5.) Some articles say one of the concerns of foreign investors in investing in the local stock market because it is an “illiquid market”. This market is also called a thin market compared with more advanced ones and is characterized by: A) the lack of buyers and sellers B) the lack of alternative investment avenues C) the lack of stocks traded
6.) Did you see the ticker tape? A trader says it’s like stocks on roller blades. Why?
A) it shows the latest information on stocks income and news developments
B) it is a moving electronic display that shows the stocks symbols and prices at which each buying or selling order is executed
C) it’s called the consolidated tape
D) both A and B
E) both B and C
7.) the breadth of the market shows A) the volume of trades B) the difference between buying and selling, C) the number of stocks traded out of the ones listed
8.) An “ask and bid” is A) the buying and selling price B) the lowest price to sell and the highest price to buy, C) the offer price and the matching price
9.) Investors sometimes use “arbitrage” in stocks like PLDT. What do they do exactly?
A) Buy and sell a combination of these shares from different markets to take advantage of bargains
B) buying and selling of shares simultaneously from different markets to try to make a profit from short-term price differences depending on the foreign exchange
C) buying and selling of shares through foreign markets to take advantage of tax rules
10.) Book value refers to A) the value of the company excluding its tangible assets B) the theoretical value of the company if all assets were liquidated or sold at the prices carried on the balance sheet and all liabilities are paid off, C) the value of the company as done by an external appraiser
11.) San Miguel offers a 10% stock dividend. The assembly hall rang with applause. San Miguel offered to: A) buy each stockholder’s 10% ownership in SMC B) sell its 10% stock to be equally divided to shareholders C) to pay each common shareholder a portion of the company’s after tax earnings in the form of stock
12.) An investment is well hedged if: A) it is protected against losses B) it has limited losses C) an investor limits losses on a certain stock by establishing an opposite position in the same stock D) yeah it’s both A and B, E) yup, it’s both A and C
13.) A broker is flipping if: A) he’s losing his mind B) he’s changing his mind C) he’s asking his customers to buy a stock while another broker is simultaneously saying that their customers sell that stock, D) he’s manipulating the stock
14.) Short selling is: A) a quick sale B) a strategy used to profit from a price decline C) selling securities that the investor has borrowed with the intention of buying them later at a lower price D) You’d better believe it’s A and C E) I have no doubt it’s B and C
15.) Someone handed you a “red herring”. Could it be: A) a bloody fish B) a slip of paper indicating your losses in your investment C) an abbreviated version of a company’s prospectus or detailed information submitted before an initial public offering
16.) The poison pill is: A) a false tip B) a nasty rumor C) a stock or security designed to defend against a hostile takeover
17.) This market is overbought. It may go down soon, says an analyst. What the analyst meant was this market is: A) technical description for a market or stock whose value has risen quickly and sharply far beyond its actual worth B) seen to be bearing the symptoms of a future decline C) filled with too many buyers D) I think it’s A and C E) I would bet it’s A and B
18.) The Phisix’s support is at 3,150 and its resistance level 3,300. Now it’s current level is 3,203.55. These levels refer to: A) the market’s floor and ceiling levels B) where a price falls to and rise repeatedly C) where buying and selling respectively are triggered D) A and B looks the best choices E) B and C are my choices F) I think all of the above
19.) The net asset value is: A) In mutual funds, the total value of the fund’s portfolio less liabilities B) In terms of corporate valuations, the book value of assets less liabilities, C) A and B, D) None of the above
20.) A company asks its shareholders to waive their pre-emptive rights. This is equivalent to: A) deferring their right to buy new common shares before they are offered to other investors B) deferring the right to vote on the stockholder’s meeting C) deferring their right to speak at the stockholder’s meeting
Whew. Good Luck!
Source: Philippine Stock Exchange and some brokers analysis
Answers :
1.C 2.B 3.D 4.A 5.A 6.E 7.C 8.B 9.B 10.B 11.C 12.E 13. C or D 14.E 15.C 16.C 17.E 18.F 19.C 20.A
Score Card:
1-4 points = Look out….a bear hug!
5-9 points= Not too late.
10-14 points = You didn’t sleep through Stocks 101 that’s for sure!
15-19 points=Right On! No need for a refresher course!
20 points= Outstanding! You can’t be manipulated!
April 2nd, 2007 at 1:28 pm
hi ben hur, thanks for the correction.
if anyone’s interested in a longer definition of this word which is usually used in stock market articles, here’s a definition from one of my favorite websites — Investopedia.com.
1. A situation in which the demand for a certain asset unjustifiably pushes the price of an underlying asset to levels that do not support the fundamentals.
2. In technical analysis, this term describes a situation in which the price of a security has risen to such a degree - usually on high volume - that an oscillator has reached its upper bound. This is generally interpreted as a sign that the price of the asset is becoming overvalued and may experience a pullback.
Investopedia Says… 1. An asset that has experienced sharp upward movements over a very short period of time is often deemed to be overbought. Determining the degree in which an asset is overbought is very subjective and can differ between investors.
2. Technicians use indicators such as the relative strength index, the stochastic oscillator or the money flow index to identify securities that are becoming overbought.
An overbought security is the opposite of one that is oversold.
April 2nd, 2007 at 9:43 am
in item #17 of your stock-a-bulary (03/31/07), i think the word “below” (in the third line) is incorrectly used. i respectfully submit that the appropriate word should be “beyond.” thus, the entire line should read:
“..stock whose value has risen quickly and sharply far beyond (not below) its actual worth…”
April 1st, 2007 at 7:35 pm
15
Fortunately mutual fund investing success doesn’t require a high score on this text.
EBITDA = earnings before subtracting all the bad stuff
April 1st, 2007 at 12:28 pm
many of the answers were unclear/misleading.
April 1st, 2007 at 1:48 am
best for a novice like me.